Federal budget 2024-25: Can IMF measures sought by Pakistan sustain growth?

As Pakistan's government prepares to present its annual federal budget for 2024-25, it faces the daunting task of balancing domestic needs and the demands of the International Monetary Fund (IMF).

The government aims to increase the GDP growth rate to over 3.5 per cent from 2.38 per cent, following a nearly two-year economic slump caused by political instability.

Prime Minister Shehbaz Sharif, who took office as the head of a coalition government after the February elections, has led efforts to revive the economy.

This includes multiple meetings with the IMF and trips to key allies, including Saudi Arabia, the United Arab Emirates, and China, to attract foreign direct investment.

Despite some signs of economic revival, questions remain about the sustainability of these improvements. Inflation, which had soared to 38 per cent in May 2023, has decreased to 11.8 per cent over the past year.

Fuel prices have also dropped, and foreign exchange reserves have improved from $2.9 billion in February 2023 to over $9 billion.

The Pakistani rupee has stabilised at 280 against the US dollar, and the stock market hit a high of 75,000 points last month.

The IMF acknowledged these improvements, noting a return to moderate growth and easing external pressures.

However, economists warn that the stabilisation is fragile, largely due to restrictive policies such as import limits.

“There is stabilization but no substantial growth, which is likely to manifest in slow growth as industry is so dependent on imports,” Safiya Aftab, an Islamabad-based economist, told Al Jazeera.

Economists also emphasise that the recent stabilisation may be short-lived.

“This ‘ad-hoc stabilisation’ has been achieved in the past but was never maintained. It dissipates as soon as the economy moves toward higher growth,” Sajid Amin Javed of the Sustainable Development Policy Institute told Al Jazeera.

Looking ahead, Pakistan requires additional liquidity from multilateral and bilateral institutions.

Early negotiations with the IMF are underway for a new program, which is expected to include further austerity and taxation measures. Such measures will likely burden ordinary citizens further, testing the political stability of PML-N's government.

As Pakistan navigates these challenges, experts stress the importance of expanding the tax net and providing relief to the formal sector to encourage reinvestment in the economy.

Reports suggest potential new taxes on solar panels and clean energy infrastructure, which could hurt the economy in the medium to long term.

While there are signs of economic stabilisation, the path forward remains fraught with challenges.

The IMF-led stabilisation efforts have historically been short-lived, and the government's upcoming budget will be crucial in determining whether Pakistan can achieve sustainable growth and stability.